The financial services sector is increasingly looking to enable financial transactions via mobile handsets and to develop mobile wallet schemes. Mobile wallet schemes are already popular in emerging markets, with companies such as Western Union heavily focusing their efforts in developing regions such as Africa however concerns with security and reliability have delayed implementation in the UK. Recently, the EU commission has finally given the green light to fully fledged mobile payment schemes in the UK. The green light from EU regulators means that Everything Everywhere, O2 and Vodafone will jointly develop a mobile wallet scheme, codenamed ‘Project Oscar’.
Project Oscar will see Near Field Communication (NFC) used to enable mobile financial transactions, and the joint venture will see the creation of a company to operate the mobile wallet service. This will allow businesses to offer a myriad of financial services through user’s smartphones and enable cross-operator deployment of credit cards, coupons and loyalty schemes. The scheme aims to create a platform within which individual services can interoperate, making it more attractive for merchants and payment providers to invest in making their products mobile-purchase-friendly and subsequently encouraging consumers to use their mobile phones for purchases.
The scheme will allow customers to purchase goods and services using their handsets in physical locations, such as shops, as well as online, negating the need for consumers to carry around a plethora of plastic account cards, as cards, coupons and transactional information can be accessed via their handsets. All of that data will be hosted on the mobile phone’s SIM card – the so-called ‘digital mobile wallet’. Customers will then be able to pay for goods or services by tapping their phone against a terminal at the point of sale, without the need to enter a PIN, making it even easier for consumers to make purchases on the move. To avoid the threat of stolen phones being used to make large unwanted payments Mobile contactless payments are likely to be limited to approximately £20, just as they are with the existing the card-based schemes. The scheme will also allow businesses to offer a wide variety of digital wallet services to their consumers, including loyalty cards and offers to be used in store, further encouraging consumers to use their smartphones as their payment method of choice.
Through Project Oscar, operators will be able to sell space on SIMs for financial services, such as payment schemes or loyalty cards, as well as cross-network advertising slots on operator portals and SMS campaigns. It also allows operators to conduct data mining, where they can amass information on the finances, consumption habits, location and demographics of its subscribers using these services. By using this data operators can then create new forms of highly targeted advertising and services for their customers and compete head to head with current card-based schemes. In an increasingly competitive market, Mastercard, Google, PayPal and Barclays are all now offering mobile payment services. Barclays and Orange have also teamed up to produce Orange’s Quick Tap platform, in which Barclaycard use NFC technology to make mobile payments. Getting a strong foothold in this market and offering services that are relevant and add value to the consumer is therefore vital in the creation of a mobile wallet scheme.
Financial institutions will all be vying to capitalise on the introduction of the mobile wallet scheme. But rather than simply working in tandem with mobile operators, they now have the opportunity to launch their own mobile networks, enabling mobile financial transactions, taking full ownership of the data gathered and retaining full control of the subscriber base.
Thirteen years have passed since Virgin Mobile launched the world’s first brand based mobile network. The years that followed have largely been punctuated by copycat failures, rather than notable successes. Recently, however, the economics and the understanding of virtual mobile services have fundamentally changed, opening up the mobile network business model to a wider range of brands, including those in the finance sector.
The emergence of the ‘mobile service provider’ has played a key role in opening up the mobile network business model, as it works in the space between a mobile operator and a third party brand, providing a hosted solution to the latter. ‘Mobile service providers’ offer the technology and strategic consultancy that enables brands to launch and sustain their own mobile services, lowering the barriers to entry and reducing the need to have vast numbers of subscribers to make the network sustainable. This model allows financial institutions to launch their own mobile services in record time, and at a far lower cost.
In the operator controlled model, the mobile operator in question still holds the monopoly over subscribers, but by launching their own mobile network financial institutions cut out the middle man and can work directly with their customers. This will allow financial institutions to directly analyse, manage and control their own subscriber bases. Like operators, financial institutions will be able to conduct data mining, finding out key information from their subscriber bases that is directly relevant to them. Mobile marketing can become more targeted and financial institutions can create closer ties with their customers through personalised offers and messages.
In order to succeed in this endeavour, financial institutions must ensure that they go above and beyond simply reselling mobile tariffs, by offering subscribers opportunities that money can’t buy. For instance, banks and financial institutions could leverage their sponsorship of other brands, such as the Premier League (Barclays) or the London Olympics (Visa), offering their customers exclusive experiences with these sponsored brands. Financial institutions can also ensure that their value added services that are offered with a tariff are stronger than what is currently on the market, in terms of the mobile wallet schemes. For instance, mobile wallets require no PIN to pay for items, potentially leaving customers open to security threats. Financial institutions can make this process a lot more secure by tying in their security protocols to the phone payment system. Project Oscar is also limited to small scale mobile financial transactions due to the fact that operators lack a banking licence. In launching their own mobile network, financial institutions can offer its customers the opportunity to make larger purchases, differentiating themselves further from other mobile wallet schemes.
Although Project Oscar is a step forwards in creating a mobile wallet, the scheme is still in its early stages. Operators will still hold the monopoly over the subscribers and financial institutions will only be supplementing the operator’s services. However, by launching their own mobile network, financial institutions can cut operators out, maximise their mobile money offerings and deliver real service value to the consumer.
Mark Ashdown, CEO, Cognatel